Germany: No bailout pressure on Portugal

2010-11-26 16:08

Berlin - Germany said on Friday it was not putting pressure on Portugal to seek aid from the EU's bailout fund, as fears of contagion from the Irish debt rescue spread throughout Europe.

"This is not at all the position of the ministry," a finance ministry spokesperson said.

The Financial Times Deutschland reported earlier, without citing sources, that the European Central Bank and other eurozone countries were pressing Lisbon to accept aid.

The Portuguese prime minister's office also dismissed the report, saying it was "totally false".

If Portugal were to tap the $500bn fund, it would help Spain, also seen as a potential bailout case, the newspaper reported.

"If Portugal were to use the fund, it would be good for Spain because the country has high exposure in Portugal," the FTD quoted a German finance ministry source as saying.

Portugal on Thursday was paralysed by a crippling general strike in protest at a drastic round of spending cuts and tax rises worth around €5bn which are currently being pushed through parliament.

The measures are intended to reduce the public deficit from 7.3% of GDP to 4.6% next year in a bid to quell growing international unease over the state of Portugal's finances.

Although Lisbon has denied it needs help, the markets are eyeing the debt-stricken southern European state as its next target after Ireland, said Thomas Mayer, chief economist at Deutsche Bank.

"I fear that the markets are looking at Portugal, which has similar fundamentals to Greece," the analyst told the Frankfurter Allgemeine Zeitung daily in an interview.

"Market movements are pointing to the expectation that Portugal will take cover under the shield," he said.

Greece was bailed out in May and Ireland was forced to seek help at the weekend after the markets turned against Dublin because of its debt and deficit problems.

- AFP